Investing: The beginning of wealth-building
THE idea of investing can be intimidating if you’re just starting out, but it’s an important part of preparing for various financial goals and building wealth. The word “investing” has been thrown out there and many discussions are all over about who’s investing, what they’re investing in, and how it has been profitable, and experts are recommending that individuals have multiple types of investments.
“You want to diversify your streams of income [so that] if one thing fails, you have other things to rely on” Jermaine Mcdonald, CEO of Learn, Grow, Invest, told the Jamaica Observer in an interview.
That’s one benefit of investing, and the other — according to chief operating officer of Learn, Grow, Invest, Renate Mcdonald — is to use it as a tool for wealth-building. She explained that while savings are encouraged, because of the inflationary impact on money in a deposit account, investing will help to grow that money quickly.
The experts suggest that in order to start investing the first thing anyone should do is to understand what options exist.
“You hear about stocks. Okay, what are stocks? How would I get started in stocks? Where do I go to buy stocks? If it’s real estate: Okay, what would I need to do in order to own real estate? And so you want to go through those steps and make an assessment to see, at least at a high level, is this for me?” Jermaine explained while emphasising the importance of seeking education before jumping ahead to buy stocks.
Renate further sought to debunk the age-old concept that investing is only for the rich.
“That’s not really true anymore. You can start with $5,000 to open an [investment] account, you can start with $10,000, and just consistently put that in over time to build your portfolio,” advised Renate as she explained that stocks are mostly popular because they have one of the lowest barriers to entry for beginners.
Stocks are essentially ownership of a company.
But Jermaine explained that even though stocks are the easiest to begin with, they come with risks.
“As persons trade those shares, depending on how well we [the company] perform (and some other factors of course) the price of [the company’s] shares may go up or it might go down, so you actually lose money as well so there is some risk there.” He added that ideally, if a company can perform well in the long term and the business grows and becomes profitable, shareholders will see returns on their investment.
Which is also why the investment coaches suggest deep research be conducted on a company before investing. Understanding how the company works, its products, the services it provides, and so on will help in assessing whether or not the company would make a good investment. But a mistake commonly made by new investors is giving all the power to brokers. In light of recent fraud at Stocks and Securities Limited (SSL), Renate says the scandal brought to light the importance of keeping check on all activities of your investment accounts.
“The only thing that can truly protect you is educating yourself, taking the time to really learn how things work, and then actively monitoring it.”
While it may seem easier for new investors to give advisors full control of their money to trade, according to what they deem is best for you, Renate says it opens investors up to more risks — and if you are not comfortable with taking that level of risk then you probably should not give fill oversight to your advisor.
She further explained that because of the risk of losing some or all of your money, brokers do a risk profile to tell them how much risk you are willing to take and then tailor your investment account to suit that.
The next type of investment they highlighted were bonds. In its simplest form bonds are “a loan that you would give a company, and there are terms that are typically there like agreed rate of interests being paid, and you also could consider starting your own business as a form of investment”, explained Jermaine.
Bonds would be the most time-consuming option and more complex. Jermaine explained that unlike stocks, bonds are rated, and he encourages everyone to look at the rates of these companies and look at what the potential risks are. While stocks can be a hit or miss, bonds provide something more stable as they are consistent payments.
“Usually bonds will have a minimum like 100 thousand, 1 million, but we’ve seen the initial amounts for bonds get lower as companies want to include more persons,” said Jermaine. So, it’s more stable but has a higher price point than stocks.
To protect yourself from delinquency the investment coaches recommend that investors ensure the company they buy a bond from has the ability to keep up with consistent payments.
The hardest step in investing is getting started, and they say once you’ve started it’s time to normalise it by setting aside money each month.
“The importance of that [consistent investments] is sometimes persons may purchase an investment and they never invest again. So they might have bought something years ago — or it’s even property or land — and they just leave it there,” said Jermaine as he explained that continuing to invest helps in growing your wealth faster.
In addition to wealth-building, investments can also be long term and help to create generational wealth, such as real estate.
“You want to pass down something to your children, you want to pass down to the next generation or the next two, three generations — the real estate works very well for that,” added Renate.
In the medium term, real estate provides great cash flow with renting and has big returns.
“Allow it to appreciate in value — whether you are doing the improvements or you’re expecting that the improvements around you will bring up the value — and then you can sell it back and that will give you some income,” Renate advised.
But because real estate is cash-intensive and requires a lot up front, Renate says it’s usually not the first investment people undertake. Stocks, bonds and real estate are three of the most common, talked-about forms of investments but there are many more — and all options are ideal depending on what you want to achieve. The onus is on you to access these options and determine which one is better for you at the beginning stages, and then focus on learning more about one at a time before you dive in.